Delta Air Lines (DAL 0.16%) received a slew of analyst upgrades recently, including one from a Deutsche Bank analyst who rated the stock a buy and increased the price target from $50 to $60. That represents a 26% upside from the current price over the next 12 months.
The upgrades come after a well-received set of first-quarter earnings. The analyst argues that the quarter's earnings report sets the company up nicely for the full year.
Delta Air Lines's upbeat earnings
Investors already knew what to expect when management gave a mid-March update on trading at the J.P. Morgan Industrials Conference. Management said its first-quarter revenue growth would be in the top half of its 3%-6% guidance range. When the earnings report released, revenue growth was 6%, at the top of expectations.
Even better, Delta's closely followed non-fuel cost per available seat mile (CASM-Ex) increased by 1.5% compared to guidance of 3%.
Investors follow the CASM-Ex number very closely because there's little Delta can do about fuel costs, and investors already have a good handle on fuel prices by watching jet fuel price indices. An adjusted fuel price of $2.76 per gallon exceeded management's estimate of $2.50-$2.70 going into the quarter.
All told earnings per share (EPS) of $0.45 came in at the high end of guidance for $0.25-$0.50, and management reiterated its full-year guidance for EPS of $6-$7 and free cash flow of $3 billion to $4 billion.
Is Delta Air Lines stock a buy?
I agree with the analysts' thinking and believe the stock is very attractive. Growth of 10% in premium cabin revenue, compared to 4% in main cabin, and total loyalty-related revenue rose 12% "continued strength in the American Express co-brand portfolio with record quarterly remuneration of $1.7 billion," according to Delta President Glenn Hauenstein on the earnings call.
That underpins the company's transition toward premium revenue sources, not least its loyalty program. Meanwhile, the positive result on CASM-Ex implies a solid margin outlook for the full year.
